One of the first decisions you’ll need to make after accepting a job offer is deciding how you’ll invest your employer plan. These plans are generally funded with pre-tax money and, in many cases, your employer will match your contributions. That’s essentially free money.
But most plan providers will offer you a limited menu of investments. Some may have a few socially responsible options, but it’s highly unlikely you’ll find a halal mutual fund. So, what are your options?
Ask your plan provider if your plan has a self-directed brokerage account. It’s essentially a sub-account within your 401(k). As employees demand more options from their employers, these types of accounts are becoming more common.
A self-directed brokerage account can offer you access to investment choices beyond your plan’s investment menu. This includes access to halal mutual funds. You should, however, proceed with caution. Investments chosen through such an account are not monitored by your plan’s provider. It’s your responsibility to read a fund’s prospectus so you understand its investment strategy, fees, and risks before investing.
Once your account is established, most plans require that you maintain a minimum investment in your 401(k) account. Also, make sure you understand your plan’s procedures for transferring funds between accounts. You will likely have to move funds occasionally between your accounts so be sure to log into your plan’s portal periodically.
What if your company doesn’t offer a self-directed brokerage account? It’s time to organize your co-workers, petition your employer and ask nicely. Start by recruiting other co-workers who also feel comfortable choosing their own investments. They don’t have to be Muslim. If you work with other professionals, like engineers, professors or physicians, you should be able to convince your employer that the company’s employees are sophisticated enough to choose their own investment options.
Don’t give up. There is strength in numbers. The greater the number of employees demanding this type of account, the more your employer will be persuaded to add it. By investing in halal mutual funds through a self-directed brokerage account, your 401(k) can be better aligned with Islamic values.
